Mortgage Rates & Mortgage Broker News in Canada

Behind Bond Movements

Lots of people know that bond yields influence fixed mortgage rates. But not so many know what influences bond yields.

There are actually countless factors and you could never list them all because some are random or can’t be anticipated (like the subprime catastrophe).

That said, the key bond drivers are inflation expectations and the supply/demand for Canadian treasuries. Those things hinge off of global economic performance (especially the performance of the U.S. economy), the risk and returns in other financial markets (like the stock market), the supply of new bonds, the Bank of Canada’s monetary policy, and the strength Canada’s economy. 

Canada’s economic performance and inflation outlook are understandably paramount.  The common gauges of these things are Canada’s monthly and quarterly economic reports. 

According to Ryan Brecht, Senior Economist at Action Economics, five reports affect government bonds the most, in this order…

1. Labour Force Survey – The key figures are:
• Net Change in Employment
• Unemployment rate
2. CPI Report – The key figures are: 
• Annual change in total CPI
• Annual change in core CPI
3. GDP Report –– The key figure is:
• Quarterly GDP
4. Retail Sales Report – The key figures are:
• Monthly change in total retail sales
• Retail sales excluding autos
5. Monthly Survey of Manufacturing – The key figure is:
• Monthly change in manufacturing shipments

“Of course, a key caveat to this list is that Canadian data is never taken in isolation,” says Brecht. “The market tends to track the direction of U.S. Treasures, with spreads adjusting based on the Canadian data and other factors.”

Brecht’s point about the United States’ influence on Canadian rates cannot be understated. Bank of Canada research has found that:

“U.S. macroeconomic announcement surprises explain a substantial part of Canadian interest rate movements.”

That, of course, is because Canada’s fortunes are so tied to our southern neighbour.

In any event, if your goal is to be a bond market prophet, there’s a lot you have to follow. 

Unfortunately, there are few on earth who can put all the puzzle pieces together and know where rates will be “x” months down the road…

(Chart data courtesy of Bank of Canada)

_____________________________________________________

Sidebar: Several other metrics also move bonds, especially when their readings surprise the market. Samples include Canada’s budget deficit/surplus, the Canadian Purchasing Managers Index, and Canadian International Merchandise Trade.

Updated Term Review

Here is the very latest mortgage term review, updated to reflect notable rate developments of the past 6 weeks.

2010 Canadian Mortgage Awards

Voting is now open for the mortgage industry's top performers.

CMP started accepting nominations for its 2010 Canadian Mortgage Awards last week. 

Ballots can be submitted here until January 14.

There are a record 20 categories this year, including two new ones. They’re all listed on this page…

CMP has changed things up this time around.  In seven categories, the winner will now be picked “through a combination of a reader poll and judge deliberation,” says Associate CMP Editor, Jesse Kinos-Goodin.

“We listened to attendees and participants from last year who wanted more involvement and thought this would be a great way to introduce that,” says Kinos-Goodin.  “The categories that have a reader poll component are the ones that all brokers would be in a great position to judge objectively.”

This year’s awards show is also later in the year than usual: April 23.  Kinos-Goodin says, “That increases our chances for nice weather.”

The show returns this year to the venerable Liberty Grand in Toronto.

BMO Gives Edge to Variables

BMO released a report on Friday about choosing between fixed and variable-rate mortgages.

BMO says, “Over the past 30 years it has been more cost-effective for borrowers to have a variable-rate mortgage 82% of the time.”

That appears true according to BMO’s assumptions. We did a slightly different test though, and will talk about that in a moment.

There is a problem with these types of studies, however, and that is sample size. There have been very few cases where history resembles today. In fact, we’ve never been witness to a monetary policy rate near 0%. 

Nonetheless, BMO economist, Doug Porter, had this to say in support of variable rates:

• “The current outlook for inflation remains benign, which will likely keep price pressures at bay well into 2011.”
• The difference between 5-year fixed mortgage rates and variable rates “is now close to an all-time high.”
• “There is also some risk to locking in as fixed rates could fall if the economy performs worse than anticipated.”

On the other hand, BMO’s report made several points upholding fixed rates. It said:

• "Short-term rates are at extreme lows and pressure is likely to build for higher rates in the year ahead."
• “The Bank of Canada's overnight rate is now as low as it can go, so there is no further downside for variable rates.”
• “Although inflation hasn't been a problem since 1991, there is a risk of an inflation flare-up as global central banks keep the pedal to the policy metal, and amid record government deficits. The Bank of Canada could be forced to raise interest rates aggressively, driving variable mortgage rates higher, but leaving Canadians with fixed rates unscathed.”
• Fixed rates were beneficial twice in recent history… “through the late 1970s and briefly in the late 1980s.” Both cases were “ahead of a period of rising interest rates, as is the case now.”

That last point is where you can look at things in two ways.  BMO arrived at its conclusions by comparing posted rates to prime rate (their chosen proxies for fixed and variable mortgage rates).  Prime is a good approximation for variable rates but no one pays posted fixed rates anymore.

So we did the same study using discounted fixed rates (i.e., 1.5% off of posted, which seems reasonable).  The results were very different…click on the chart below.

With these assumptions, there were at least six periods in recent history when fixed rates beat variable rates at prime.  Put another way, discounted fixed rates would have outperformed prime rate almost half the time.  (Mind you, if big discounts to prime were available once again, variable rates would fare better.)

BMO declares that the optimal choice “depends on the individual.”  That, of course, is true as always.

Interestingly, if we forget about chart data for a moment, it appears BMO presents more arguments in support of fixed rates than it does for variable rates.  In addition to its comments above, BMO says:

• “The moderate extra cost of peace of mind you can get from a fixed rate may be a price worth paying.”
• “There is also a reasonable scenario where fixed rates may actually prove to be a cheaper alternative at this point.”

Despite all of this, BMO says its “core view” is that:

“The most likely economic and interest rate outlook will ultimately again slightly favour the variable rate option.”

But what does “slightly favour” mean?  If we assume a 55% probability, then it’s little better than a coin flip.

For most people, if they faced a 45% probability of losing money, they’d insure against it.  Fixed rates provide such insurance, and if rates rise 2.5% or more over the next few years, that insurance will start looking pretty good.

Our perspective isn’t meant to be a blanket endorsement of fixed rates, but the above is definitely something to think about if you’re on the fence.

Mortgage Files: Stats from CAAMP’s Annual Meeting

Merix Financial sent out a summary of comments made by CAAMP chief economist, Will Dunning, last week.

Here are a few of Dunning’s bullet points…

• A big factor leading up to the U.S. mortgage crisis was that 40% of American home purchases were being made for investment purposes. In Canada today, the figure is far more reasonable at 5%.
• Despite the economic meltdown, Canadian mortgage arrears are still just .40%.
• Last year, 18% of Canadians refinanced. They took out $41 billion of equity from their homes. In 2009, Dunning feels the figures should be similar.
• 41% of refinance proceeds were used to pay down debt. 29% was used for home renovations. 15% was used for investing.

According to Merix, the most important stats for mortgage brokers were these:

• This year, only 1/3 of mortgage activity was new mortgages.
• Over 2/3 of Canadian mortgage activity was renewals and refinances.

With the refinance phase coming to an end and new mortgage activity declining, Dunning said, brokers will need to be far more strategic in terms of marketing and prospecting.

Dunning also noted that borrowers generally remain with the same lender at renewal. That’s in keeping with a stat we wrote about earlier this year.  According to CMHC, 90% of borrowers renewed with their existing lender:  CMHC 2009 Mortgage Survey. 

That’s a stat that makes repeat business a lot harder to come by.

(Partial Source:  Merix Financial)

Don’t Get Excited By Rising Yields, Suggests Carney

Canada’s head banker, Mark Carney, says bond traders have “lost their focus” by running up bond yields.

He told Reuters: “We don't see, for example, corporate investment really picking up until 2011…2010 is still going to be a year where policy really matters."

Translation:  Don’t bet on prime rate rising before the end of June 2010 (assuming inflation remains under 3%).  Carney believes our economy still needs low rates.

That, of course, is reassuring news for variable-rate mortgage holders.  It’s not so reassuring, however, for people who feel housing prices are getting a bit frothy. (There seems to be a lot of press about Canada’s growing housing “bubble” lately. We’ll touch on that in a separate article.)

As for the 5-year bond yield, which drives fixed mortgage rates, it’s up four basis points today to 2.78%.  (That’s not too far from the one-year high of 2.91%.)

For now, we’ll be awaiting next Thursday’s industrial price index reports, next Friday's GDP report, as well as the big October employment report on Nov. 6.  Central One Credit Union economist, David Hobden, feels October’s employment figures will be something to keep an eye on.  He says, "Employment is best measure of real economic output."

AGF Trust’s New Simple Mortgage

After years of serving the alternative lending market, AGF Trust has charged into the high-ratio insured mortgage business--with the launch of its “Simple Mortgage.” 

The Simple Mortgage rolled out on October 14. It’s designed to be a full-featured mortgage at no-frills rates (currently under 4% on a 5-year fixed).  This is a first for AGF as it's never offered fully-discounted insured mortgages before. 

All Simple Mortgages are CMHC insured.  Interestingly, unlike most new insured products, AGF’s Simple Mortgage is not securitized (resold to investors).  Instead, the company says “AGF Trust is currently well capitalized and will hold these mortgages on the balance sheet.”  The company says it views insured mortgages as “an attractive asset class.”

Besides solid rates, AGF cites its primary advantages as being: 

• A longer rate hold than its no-frills competitors (60 days vs. 30 days)
• More flexible payment and pre-payment options. 

AGF also has an opportunity to impress with service, given the subpar turnaround times at many lenders nowadays.  (Hopefully AGF has plenty of underwriters on staff to come through on this promise.)

The company says it chose the name “Simple Mortgage” because its mortgage underwriting criteria are “standard, traditional, and basic.”  AGF says there is nothing "grey" about this mortgage in terms of qualifying.  The goal is to make qualifying “simple black and white.”

Here are the main product details…

• Rate hold:  60 days
• Minimum Credit Score:  620 (600 for co-borrowers)
• Income:  Verifiable only (no stated income)
• GDS/TDS:  35%/42% (up to 44% with a 680+ Beacon)
• Lending area:  Ontario (other provinces may come later)
• Maximum Mortgage:  $750K in GTA; $500K elsewhere
• Minimum Mortgage:  $100K
• Maximum LTV:  95%
• Switches:  No (Clients must refinance)
• Pre-approvals:  No
• Gifted / Borrowed Down Payments:  Yes / No
• Lump sum pre-payment option:  20% annual (on any payment date)
• Payment increase option:  20% annually
• Early termination penalty:  Greater of 3-months interest or IRD
• Amortization:  Up to 35 years

Other considerations:

• Properties should be 1-2 units in “readily marketable in urban locations” (no well or septic)
• Owner-occupied properties only
• AGF’s IRD penalty is based on bond yields.  (We’ve requested the calculation method and will advise.)
• A good established credit history is essential

The Simple Mortgage is a solid new entrant in a crowded field.  However, if AGF stays true to its rate promise, it may have a winner.

_____________________________________________________

For complete details, contact any AGF Trust-approved mortgage planner.

RBC Cuts Secured LOC Rates by 1/2%!

Kudos to RBC for taking the lead and cutting its secured line of credit (Homeline) rate.

Effective tomorrow, the rate will fall from prime + 1.00% to prime + 0.50% (for new customers).

Marcia Moffat, head of RBC Home Equity, says: “…We are…giving Canadians access to the best priced credit line in the market today."

This is big news because it will undoubtedly put pressure on other lenders to cut their HELOC rates.  Secured LOCs have been stuck around prime + 1.00% since last fall when the credit markets blew up.

CAAMP 2009

The mortgage industry’s biggest annual gathering is right around the corner. 

The 2009 CAAMP Conference & Expo starts November 22, and Friday is the last day you can get discounted Early Bird tickets.

This year’s show takes place at the Metro Toronto Convention Centre. It features a slate of new exhibitors, including:

• Industrial Alliance
• IC Savings and Credit Union
• Fortress Real Capital
• Secure Capital
• Right Mortgage
• Home Owner Soon
• Inorbital
• FNF Canada
• Maritz Canada
• Morcan Financial
• Proforma
• Real Estate Institute of Canada

Conference sessions include:

• The Mortgage Broker Panel (Probably one of the most practical and insightful sessions…with well-known brokers Dave Trithart, Peter Kinch, Tom Hogg, and Bryan Guinan)
• The Mortgage Lender Panel (Sure to reveal important lender trends…with executives Boris Bozic, John Webster, Ivan Wahl, and Stephen Smith)
• CIBC’s Benjamin Tal (Always entertaining and full of economic stats pertinent to the mortgage industry)
• Dragon’s Den’s Brett Wilson (A multi-millionaire investor, TV personality, philanthropist, and master deal maker)

CAAMP has selected a few more generic (Speakers Bureau) speakers than some might like, but it’s an interesting agenda nonetheless. While the tickets may not be cheap, a single pivotal idea or new relationship can offset the cost pretty quickly. 

(AMP holders receive 8 AMP continuing education credits for attending.)

New CAAMP Board Announced

CAAMP announced its new Board of Directors this morning at its Annual General Meeting in London, ON.

Hali Strandlund, President of Fisgard, will serve as CAAMP’s Chair, while Pierre Martel, CHA, will be outgoing Chair.

Elected for a two year term are:

• Boris Bozic, AMP, Ontario
• Paul Kozan, AMP, Saskatchewan/Nunavut
• Daniel Migneault, CHA, Quebec
• Susan Pimento, AMP, Ontario
• Ajay Soni, AMP, BC/Yukon
• Michael Wolfe , AMP, Alberta/NWT

Returning to complete their terms are:

• Sam Carnovale, AMP, Ontario
• Bonny Clarke, AMP, Alberta/NWT
• Naureen Durack, CHA, Quebec
• Stan Falkowski, AMP, Ontario
• Daryl Harris, AMP, Manitoba
• Todd Harris, AMP, Atlantic Canada
• Joe Pinheiro, AMP, Ontario

CAAMP says its 2009/2010 CAAMP Executive Committee will be selected in coming weeks.

_____________________________________________________

More about CAAMP

BoC Makes No Change to Rates

As expected, the Bank of Canada (BoC) did not alter Canada’s key lending rate.

The Bank’s overnight target remains at a record-low 0.25%.

In its much anticipated statement today, the BoC said:

• “A recovery” is “under way in Canada.”
• “…Persistent strength in the Canadian dollar (is) working to slow growth and subdue inflation pressures.”
• “Growth is expected to be slightly higher in the second half of this year than previously projected but to average slightly lower over the balance of the projection period.”
• “Inflation is also expected to return to the 2 per cent target in the third quarter of 2011…”

The BoC also reaffirmed its conditional commitment to keep the overnight target rate unchanged “until the end of the second quarter of 2010.”

Bond yields dropped on today’s news.  Both the 2-year and 5-year government yields were down eight basis points as of this writing. 

2.90% is now a short-term point of reference on the 5-year yield chart.  We probably won’t see 5-year fixed rates increase much further unless yields break above this number.

In terms of variable mortgages, there is no economist in Canada (that we know of) who is projecting an increase in prime rate this year.

The Bank of Canada’s next interest rate meeting is December 8.  This will be its last scheduled meeting of the year.

BoC Meets on Interest Rates Tomorrow

All eyes in the mortgage industry will fixate on the Bank of Canada (BoC) tomorrow. 

People are eager to see if the Bank’s interest rate statement will yield any potential clues on the direction of rates.

As most now know, the BoC conditionally committed to keep rates flat until Q3 next year.  After that, anything goes. In September, BoC governor, David Longworth, said, “One would expect there would be some movement up in interest rates following the end of June 2010.”

Since Longworth made that statement, there’s been more talk in the media about rates going up sooner.  That’s due to recent hints of economic strength.

So far, however, inflation (the main rate hike catalyst) is nowhere to be seen.  As a result, 23 of 23 major economists surveyed by Bloomberg expect no change by the BoC on Tuesday.

When rates finally do begin their ascent, the magnitude of the increases will depend on how fast the economy roars back.  Some economists think the BoC will have its hands full next year.  On Friday, for example, the Conference Board said it expects the Bank of Canada to lift rates 3.75% by 2011. (CBC)  That’s one of the most aggressive rate hike forecasts so far.

At the moment, most economists’ predictions seem to be for a 2.0-2.5% eventual increase.  But few expect any imminent action.  Eight of 12 primary bond dealers polled by Reuters believe the Bank will not raise rates until late 2010. (Reuters)

The Merix HELOC Is Back

There’s a new readvanceable mortgage in town.  After an 11-month hiatus, Merix Financial has re-launched its HELOC. 

Compared to Merix’s previous iteration, this version is somewhat unique.  For instance:

• You can have up to a three components:  a 5-year fixed, a 5-year variable and/or a line of credit (LOC).  If you like, your mortgage can be split among these segments.
• You can lock in $25,000 portions of the LOC to a fixed or variable rate at any time.
• Unlike most lender’s HELOCs, this one is fully insured (so Merix can securitize it)
• The entire mortgage--including the LOC—is portable (a nice feature not found in many readvanceables).
• Since it’s insured, TDS can go up to 44% with a 680 Beacon

Merix’s HELOC is also unique in that it has a defined term (5-years).  Most open HELOCs don’t have terms.  Merix says it needed to make it a 5-year product because it’s easier to securitize.

The trade-off of this is the penalty.  If you break it before five years, Merix charges 3-months interest or IRD or an administration fee—whichever is greater (IRD applies only to fixed portions).  The administration fee equals .025% of the total authorized loan amount times the number of months remaining.

The penalty applies even if the entire mortgage resides in the LOC portion—which is unusual.  This is attributed to the considerable fees lenders must pay to set up HELOCs in the Canada Mortgage Bond program.

On the upside, the HELOC is fully and automatically readvanceable.  In other words, as soon as you make a mortgage payment (or pre-payment), your available line of credit increases instantly and proportionately.

Some more details…

• Minimum Beacon:  680 (650 for secondary applicants)
• GDS/TDS:  35%/42% (up to 44%)
• Term:  5 years
• Maximum LTV:  80% (0.15% higher rates apply above 75%)
• Mortgage Types:  Owner occupied, 2nd homes, rental (1-4 units), and BFS
• LOC Sub-accounts:  One
• Qualification Rate:  3-year fixed rate or contract rate
• Prepayment Options: 
• Fees:  $5 per month
• Maximum Amortization:  25 years
• Pre-Approvals:  Not available
• Down Payment:  Must be from own resources
• Maximum Loan:  $1 million (or more if customer pays the insurance premium)

Our wish list for this product is relatively short:

1. Multiple sub accounts (a la National Bank’s All-in-One, Scotia’s STEP, BMO’s Readiline, etc… Multiple LOC accounts are handy for segregating personal and investment borrowing.)
2. Online account access and funds transfers (Currently, you need to fax or email LOC withdrawal requests.)
3. No penalty for breaking if the mortgage is entirely in the LOC portion (That said, Merix notes that its HELOC is not intended for short-term financing options.)

All in all, it’s great to have Merix back in the HELOC game.  Its new HELOC has some positive traits and is definitely worth a look.

______________________________________________________

Please note:  Other details may apply. Speak with a Merix-approved mortgage planner for complete information.

Canadian Tire Pulls Plug on Mortgage Biz

Canadian Tire (CT) started selling mortgages three years ago. That foray ended today.

The company is selling its entire mortgage portfolio to National Bank and exiting the business completely. 

CT apparently figures it can make more money lending out its $2.1 billion in deposits to credit card holders. (The company is one of the biggest card issuers in Canada).

CFO, Huw Thomas, told FP that: "We had been in pilot [stage] for a period of time with our mortgage business and we looked at the business and the market conditions and decided longer term that the best opportunities resided in our core business and retail banking."

Current CT mortgage holders will be transitioned to National Bank in “early 2010.”  That entails less than 1,000 customers and $167 million in mortgages—not big numbers.  The sale price will be “essentially…book value,” said the company.

CT was best known for its One & Only product, an interest offsetting readvanceable mortgage.  The company was also fiercely competitive with interest rates for quite a while.  That changed this year when CT refused to lower rates despite improvements in market-wide funding costs.  Sources say that was the first clue that “something was up.”

Today’s news leaves just two prominent lenders with interest offsetting mortgages:  National Bank and Manulife.  (Note to lenders: We could really use another one.)

CT didn’t waste any time after this announcement. Mortgage information has already been removed from their website and replaced with today’s press release.

Last-Minute Fixed Rate Deals

Yesterday was a huge day for pre-approval submissions.  Borrowers were  locking in rates by the thousands.

For those still in need of a rate-hold, the remaining mortgage “deals” are mostly from non-bank lenders.

As of this writing:

• The Big 5 have all raised 5-year “special offer” rates to 4.54%, or just above.
• A diminishing number of non-bank lenders are still under 4% on a standard 5-year fixed mortgage. (It’s difficult to say how long that will last…probably not long.)

Interestingly, not only have 5-year fixed mortgages become more pricey, but shorter terms have also sprung up.

If you haven’t looked lately, check out where the 2-year bond is trading. It’s been over a year since the 2-year last exploded like this.  That’s propelling shorter-term fixed rates—like 2- and 3-year mortgages—higher.

The exception to these rate increases are variable and 1-year terms, which have stayed put and are averaging prime and 2.49% respectively.

Laurentian Bank’s Homeowner’s Kit Mortgage

Laurentian Bank has an interesting product that’s been flying under the RADAR for a while. It’s called the Homeowner’s Kit.

The Homeowner’s Kit is a readvanceable mortgage and a hybrid mortgage in one.  It was launched in Quebec in 2006 and in Ontario in 2008.  (Other provinces are expected in early 2010.)

Laurentian’s Manon Stébenne says the Homeowner's Kit encompasses both “mortgage and mortgage line of credit products under a single lending umbrella.” 

Its primary benefit, like most readvanceable mortgages, is access to liquidity (i.e.,  access to the equity that’s locked in your house).  That works basically like this:  As you pay down your mortgage--or your home rises in value--your available line of credit can be increased without reapplying.  That lets you easily pull out equity for emergencies, investments, renovations, etc.

To date, Laurentian hasn’t marketed the Homeowner’s kit very much.  Despite that, Stébenne says it’s had “excellent success.”  It is now Laurentian’s top-selling product for refinancing purposes.

The Key Features:

• Maximum LTV:  80%
• Allowable Segments: Up to 3 different lines of credit and up to 3 different locked-in mortgage portions (handy for diversifying interest rate exposure)
• Allowable Debt Ratios:  30/38
• Minimum Beacon:  650
• Portable:  No (It is not portable or assumable)
• Registration:  100% of property value (this enables increases to the LOC limit as the property value rises)
• Qualifying Rate:  3-year posted
• Qualifying Amortization:  20 years

The qualification standards are rather stringent compared to Laurentian’s competitors but Stébenne says that’s on purpose.  The conservative guidelines let customers safely request more credit “without needing to repeat the qualification process.”

The biggest beef some might have with the Homeowner’s Kit is its lack of automatic readvancing.  Once equity builds up, borrowers must call Laurentian to ask them to manually readvance this equity to the LOC.  That makes it less convenient than products like the FirstLine Matrix, National Bank All-in-One, and RBC HomeLine. It also makes the Homeowner’s Kit less than ideal for strategies like the Smith Manoeuvre.

In sum, however, the Homeowner’s Kit is a fantastic extension to Laurentian’s mortgage lineup—and one that adds lots of flexibility.  The fact that it’s available below the standard prime + 1% LOC rate is a bonus.

______________________________________________________

More About Laurentian Bank

Founded in 1846, Laurentian Bank of Canada is a Schedule I bank operating nationwide. In the Province of Quebec, Laurentian operates the third largest retail branch network. Elsewhere in Canada, it operates in specific market segments, both online and through intermediaries. Laurentian Bank of Canada has more than $21 billion in assets and more than 3,500 employees.

RBC Raises Rates. Others Should Follow

Wow.  RBC isn’t wasting any time following today’s bond market rout.  It just announced a variety of fixed-rate increases:  Press Release

Among other increases, four and five-year fixed rates are up 0.35%, effective tomorrow.

Other banks should follow soon.

RBC’s new trend-setting 5-year fixed “special offer” rate is now 4.54%.

Enormous Bond Yield Increase

The 5-year bond yield is soaring over 23 basis points as we speak!

It’s the biggest jump in bond rates in over a year and it comes on top of strong gains over the previous few days.

The yield is now near an 11-month high, and that means fixed mortgage rate increases are around the corner.

If you’re home hunting and wondering if you should lock in a mortgage rate, don’t waste any more time.  Protect yourself now with a rate hold or pre-approval.  There’s now a much higher probability we won’t see today’s insanely low fixed rates again for a while.

What’s behind all this?  Today’s positive employment report is the big driver.  It caught the bond market totally off guard.

Here’s what analysts are saying:

• Action Economics: “The impressive September employment report has fed speculation that the BoC will follow the RBA and tighten earlier than expected.”
• National Bank:  “With the recession over in the labour market and the biggest decrease in the unemployment rate since November 2005, our call for a rate increase by the Bank of Canada in the first quarter of 2010 remains on track." (Globe)
• Scotiabank:  “…It will feed growth prospects and inflation fears and raise market concerns regarding the BoC's conditional rate commitment.” (National Post)
• BMO Nesbitt Burns:  “This is the sound an economy makes when an economy recovers.” (Globe)
• RBC Economics:  “…At 8.4% the unemployment still implies considerable slack in this economy. This provides reason for the Bank to maintain its commitment to a 0.25% policy rate until mid-2010.” (National Post)
• TD Securities: “We believe that it will certainly lead the Bank of Canada to focus on the timing of future interest rate increases set out in its conditional commitment to hold interest rates at the current level until Q2 2010. Nonetheless, while for now we continue to expect the policy rate to remain unchanged until Q4 2010, we think that the risks of an earlier move have increased dramatically." (Globe)

Get prepared for all the previously dovish economists out there to start shifting to their “other hand” very soon…

Genworth Update

Mortgage default insurer, Genworth Financial, eased some of its Canadian mortgage insurance guidelines a few weeks back.

It increased its total debt service (TDS) maximums, relaxed credit scores for stated income products, and eliminated special credit requirements for cash-out refi’s and high-rise condos.

Genworth’s new guidelines are now closer to CMHC’s and it appears the company has become increasingly intent on defending its market share. In talking with sources at Genworth, they spoke about some of the reasons behind these guideline changes…

Earlier this year, Genworth was in the front row of the global economic crisis. As a proactive measure to manage risk and protect homebuyers, the company tightened up its qualification standards.

The recent changes (noted above) are basically a reflection of the improvements seen in the Canadian economy and housing market over the past several months.

Genworth cites rebounding consumer confidence, market stabilization, and fewer job losses as key factors behind Canada’s economic improvements.  While the company says it will keep a close eye on the housing market and the economy, it believes “the worst is over.”

That said, Genworth will continue to watch its risk metrics and “make underwriting adjustments accordingly.”

Aussie Rate Hike Puts Focus on BoC

Australia surprised many by hiking interest rates yesterday. They’re the first Group of 20 country to do so since the global recession began.

That’s got some looking for parallels between Australia and Canada.  One parallel is with housing prices—which have rebounded strongly in both countries.

A TD report yesterday said: “The Bank of Canada could very well follow suit [and raise rates] if Canadian real estate continues to heat up.” TD suggested the Bank of Canada is watching to see if Canada’s record-low interest rates may be too “stimulative”—particularly with respect to housing prices. 

On the other hand, TD also says:

a) Canadian economic fundamentals “will remain weak” into next year

b) The BoC is more focused on inflation threats—which are presently minimal.

c) The BoC views Canada’s recent strength in MLS sales as “temporary.”

In addition, while Canada’s economy is somewhat similar to Australia—we’re being weighed down by our neighbour to the south. By contrast, Australia has a more autonomous recovery already underway.

As a result, if this Australia news does raise the odds of surprise rate increases in Canada, it likely does so only marginally.

More from the National Post and Globe & Mail...